Laffer traps and monetary policy

This article focuses on the interaction, in a stylized economy with flexible prices, of monetary and fiscal policy when both are active-active in the sense that how the policy instrument is set depends on the state of the economy. Fiscal policy finances a given stream of government expenditures through distortionary labor taxes, and it operates under a strict balanced-budget rule. If monetary policy is passive, the economy may occasionally switch, because of self-fulfilling expectations, from the neighborhood of a "Laffer trap" equilibrium to the saddle-path leading to the high-welfare steady state. In the low-welfare stationary state, output, investment, and consumption are low while the tax rate is correspondingly high. However, active monetary policy may, by following a rule such that the nominal interest rate responds positively to the state of the economy, push the economy toward the high-welfare equilibrium and rule out expectation-driven business cycles.Monetary policy ; Fiscal policy

Resuscitating the credit cycle

This paper resuscitates the credit-cycle theory of Kiyotaki and Moore (1997) in a two-agent RBC model with conventional preferences and standard neoclassical technologies. It is shown that small transitory shocks to credit demand (or supply) can generate large, highly persistent, dampened cycles in aggregate output. Key to our results is the interaction between credit constraints and habit formation. Credit constraints based on collateralized assets mainly amplify the impact of shocks while habit formation in consumption demand mainly propagates it. Hump-shaped boom-bust cycles do not arise in the model under standard parameter values if either one of the two elements is missing.Credit

Leveraged borrowing and boom-bust cycles

Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between leveraged borrowing and persistent asset demand can generate a multiplier-accelerator mechanism that transforms a one-time technological innovation into large and long-lasting boom-bust cycles. The predictions are consistent with the basic features of investment booms and the consequent asset-market crashes led by excessive credit expansion.Asset pricing ; Credit

Learning Financial Shocks and the Great Recession

This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning the uncertain environment. When agents update their beliefs about the parameters that govern the unobserved process driving financial shocks to the leverage ratio, the responses of output, investment, and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to- GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with actual leverage innovations observed over that period, the learning model predicts that the persistence of leverage shocks is increasingly overestimated after 2002 and that a sizeable recession occurs in 2008-10, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the amplification due to learning and, accordingly, that macro-prudential policies that enforce countercyclical leverage dampen the effects of leverage shocks

Nutrient availability links mitochondria, apoptosis, and obesity

Mitochondria are the dominant source of the cellular energy requirements through oxidative phosphorylation, but they are also central players in apoptosis. Nutrient availability may have been the main evolutionary driving force behind these opposite mitochondrial functions: production of energy to sustain life and release of apoptotic proteins to trigger cell death. Here, we explore the link between nutrients, mitochondria and apoptosis with known and potential implications for age‐related decline and metabolic syndromes

Risk Sharing and Growth in Small-Open Economies

In this paper, we revisit the question of how domestic and foreign risks affect growth through the lens of an AK small-open economy model with risky borrowing/lending and global diversification. Wealth is allocated between domestic and foreign assets and the optimal allocation depends on both the difference in deterministic returns and the relative magnitude and correlation of domestic and foreign risks. Depending on parameters, the small-open economy may choose to either borrow from abroad, despite the fact that this is risky, or lend. In contrast to standard N-country models, whether growth is faster or slower (and whether growth is more or less volatile) compared to autarky is not entirely driven by relative risk aversion but also depends on the return and risk characteristics of domestic and foreign assets. We also show that growth volatility and mean growth have typically nonmonotonic relationships with the the levels and correlation of domestic and foreign risks. We argue that these results are in line with, and lay down some theoretical foundations for explaining the conflicting empirical results regarding the impact of international financial integration on growth and in particular threshold effects

Clinical and biochemical correlates of serum L-ergothioneine concentrations in community-dwelling middle-aged and older adults

Background: Despite the increasing interest towards the biological role of L-ergothioneine, little is known about the serum concentrations of this unusual aminothiol in older adults. We addressed this issue in a representative sample of communitydwelling middle-aged and older adults. Methods: Body mass index, estimated glomerular filtration rate, serum concentrations of L-ergothioneine, taurine, homocysteine, cysteine, glutathione, cysteinylglycine, and glutamylcysteine were evaluated in 439 subjects (age 55–85 years) randomly selected from the Hunter Community Study. Results: Median L-ergothioneine concentration in the entire cohort was 1.01 IQR 0.78–1.33 mmol/L. Concentrations were not affected by gender (P = 0.41) or by presence of chronic medical conditions (P = 0.15). By considering only healthy subjects, we defined a reference interval for L-ergothioneine serum concentrations from 0.36 (90% CI 0.31–0.44) to 3.08 (90% CI 2.45–3.76) mmol/L. Using stepwise multiple linear regression analysis L-ergothioneine was negatively correlated with age (rpartial =20.15; P = 0.0018) and with glutamylcysteine concentrations (rpartial =20.13; P = 0.0063). Conclusions: A thorough analysis of serum L-ergothioneine concentrations was performed in a large group of communitydwelling middle-aged and older adults. Reference intervals were established. Age and glutamylcysteine were independently negatively associated with L-ergothioneine serum concentration.</br

Land Collateral and Labor Market Dynamics in France

The value of land in the balance sheet of French firms correlates positively with their hiring and investment flows. To explore the relationship between these variables, we develop a macroeconomic model with firms that are subject to both credit and labor market frictions. The value of collateral is driven by the forward-looking dynamics of the land price, which reacts endogenously to fundamental and non-fundamental (sunspot) shocks. We calibrate the model to French data and find that land price shocks give rise to significant amplification and hump-shaped responses of investment, vacancies and unemployment that are in line with the data. We show that both the endogenous movements in the firm’s discount factor and the sluggish response of the land price are key elements that drive the results